The Second Swedish National Pension Fund (“AP2”) and the Sixth Swedish National Pension Fund (“AP6”) today announce that they have entered a definitive agreement under which Castellum AB (publ) (“Castellum”) will acquire all outstanding shares in Norrporten AB (publ) (“Norrporten”) through a combination of cash and shares. Up until closing, the total consideration amounts to SEK 14.0 billion. The sale will result in the realisation of significant value increases. The value of Norrporten’s property portfolio has on average grown by 14% during 2000-2015.

The cash consideration amounts to approximately 78% of the total consideration for Norrporten and Castellum shares represent the remaining approximately 22%. Following the transaction, AP2 and AP6 will each own approximately 5% of the share capital and votes in Castellum.

AP2 and AP6 believe that this is the right time to divest their holdings in Norrporten, and thereby realise a significant capital increase to the benefit of Swedish pensioners. Castellum is one of Sweden’s largest and most renowned property companies and AP2 and AP6 look forward to become shareholders in Castellum.

– We are proud of Norrporten’s development since 2001. The sale to Castellum gives Norrporten the best possible environment for continued development. AP2 has been an owner in Castellum since 2002 and we look forward to increasing our ownership in the company. For AP2, the transaction will allow us to take another step in our investment strategy to increase the share of property investments on other markets, says Eva Halvarsson, CEO of AP2.

– Castellum is a large listed property company with significant experience and competence, and we believe that Norrporten will continue its successful development as part of the combined company. There is a clear logic for AP6 to divest its holding in Norrporten given that the investment has accounted for close to 25% of our total invested capital. It therefore makes sense for us to rebalance our portfolio through this transaction, which is the result of a comprehensive and well-structured sales process, says Karl Swartling, CEO of AP6.

The transaction requires approval from relevant authorities and the extraordinary general meeting’s approval of a rights issue at Castellum.

Rothschild has acted as principal financial advisor to AP2, AP6 and Norrporten, who also have been advised by Goldman Sachs International and Nordea. Vinge has acted as legal advisor.

For more information:
Eva Halvarsson, CEO Second Swedish National Pension Fund, +46 31 704 29 11
Ulrika Danielson, Head of Corporate Communications, +46 31 704 29 29

Karl Swartling CEO, Sixth Swedish National Pension Fund, +46 31-741 10 04
Ulf Lindqvist, Director of communications, +46 708 74 10 48, ulf.lindqvist@apfond6.se

The Ethical Council of the Swedish AP Funds has an important task – to encourage portfolio companies to enhance their performance on environmental and social issues. The AP Funds are long-term, responsible and committed investors. The Ethical Council’s dialogues with companies make a difference. During 2015, the Ethical Council conducted dialogues with 178 companies around the world concerning a total of 254 incidents, pertaining mainly to business ethics, human rights, labour rights, corruption and the environment.

In 2015, the Ethical Council has conducted dialogues with some 178 companies around the world, involving various aspects of sustainability. During the year, the Council has recommended that the AP Funds exclude two companies, Motorola Solutions and Larsen & Toubro, consequent to their contravention of conventions to which Sweden is a signatory. Over the nine years in which the Ethical Council has been active, it has recommended that the AP Funds exclude a total of 19 companies. Four of these recommendations were retracted in 2015, after the companies in question terminated the activities that had originally motivated the Council’s recommendation for exclusion.

“The Ethical Council’s basic premise is that the AP Funds shall abstain from investment in companies that systematically violate the international conventions to which Sweden is a signatory. Should problems be encountered, the Ethical Council becomes actively involved, with a view to promoting improvements,” says Ulrika Danielson, who chairs the Ethical Council in 2016.

Based on the AP Funds’ joint mission and common code of values, the Ethical Council works preventively and reactively to make a difference on environmental and ethical issues. Preventive initiatives are of increasing importance in persuading companies and industries to act more responsibly. During 2015, the Ethical Council has been involved in a number of proactive initiatives, some of which have been industry-specific, including the palm oil and cocoa industries, others addressing companies on emerging markets. Focus areas highlighted during the year have featured human rights, corruption and climate issues.

“During the first nine years of the Ethical Council’s operation, approaches, principles and work processes have been developed that have subsequently become role models in the industry. When we started in 2007, the Ethical Council engaged primarily in reactive dialogue with portfolio companies. Today, the Council has developed to primarily focus on proactive dialogues and various industry initiatives,” says Ulrika Danielson.

Learn more about the Ethical Council’s corporate dialogues and other activities in the 2015 Annual Report, which can be downloaded from the Ethical Council’s homepage at www.etikradet.se or here (PDF-document, 1,9 MB).

For further details, contact:
Ulrika Danielson, Chair of the Ethical Council 2016, Phone: +46 (0)31-704 29 29 
John Howchin, Secretary-General, Ethical Council, Phone: +46 (0)8-555 171 76
Email: info@etikradetapfonderna.se

The AP Funds’ Ethical Council
The AP Funds’ Ethical Council is a collaboration between the First, Second, Third and Fourth AP Funds, which are tasked by the Swedish Parliament with creating high returns at low risk for Sweden’s current and future pensioners. The Ethical Council is dedicated to contributing to the AP Funds’ long-term returns by encouraging companies to adopt responsible business praxis with regard to environmental and social issues.

The Second AP Fund allocates one percent of its total strategic portfolio to ‘green bonds’, making this asset class part of the Fund’s broad investment strategy. This marks a new strategic approach with regard to the Fund’s investments in sustainability – and a further step along the way to making sustainability an integral part of the asset-management process.

The Second AP Fund has decided to allocate one percent of its total strategic portfolio to ‘green bonds’ and to benchmark this allocation against the Barclays/MSCI Green Bond Index. This is a strategically important decision that will further enhance the Fund’s efforts in the field of sustainability. Furthermore, the Fund has additional investments in green and social bonds, which are managed as part of its existing portfolio of global bonds. The Fund’s total current investments in green bonds amount to SEK 4.2 billion.

‘Green bonds’ is a collective term for bonds issued with a view to funding environment-related investments. The Second AP Fund’s fixed-income portfolio management team has extensive experience of sustainable investment. When the Fund first invested in green bonds, in 2008, it was one of the first in the world to invest in this asset class.

“The percentage of green bonds featured in the active bond portfolio has risen sharply in recent years and we feel that the market has now achieved a maturity and size to justify a separate investment strategy and their definition as an individual asset class. We are therefore breaking out our holdings in green bonds from the fixed-income portfolio, to manage them in accordance with a dedicated investment strategy. This strategic move offers the Fund clear means of combining solid returns with an allocation of resources to the global sustainability challenge,” says Lars Lindblom, portfolio manager at the Second AP Fund.

“We are a player engaged in investment on the global bond market. The return we require on green bonds in no way differs from other investments, although our preference is a green bond rather than another instrument of similar value,” states Lars Lindblom.

For further details, please contact Lars Lindblom, portfolio manager (fixed-income) at +46 (0)31-704 29 00, or Ulrika Danielson, Head of Communications, at +46 (0) 31 704 29 29.

The Second Swedish National Pension Fund (AP2) reported a total return on investment of 4.1 percent for the full twelve months, excluding expenses. Assets under management rose to SEK 300.6 billion. The net result was SEK 11.7 billion. The relative return on the total portfolio, excluding alternative investments and costs, amounted to 0.9 percent. The Fund’s performance in 2015 means that it has exceeded targeted return in both the long and short term.

CEO, Eva Halvarsson, comments on the result:

“Early 2015 saw the AP2’s total assets under management pass the SEK 300 billion mark for the first time. This should be compared with the SEK 134 billion the Fund started with in 2001. Furthermore, AP2’s total result has amounted to SEK 175.3 billion since the Fund’s inception.

“Especially in light of the overall market development during the year, it is gratifying to note that our active management of assets generated a relative return of 0.9 percent. Our portfolio of Swedish equities enjoyed an excellent year, producing an excess return of SEK 1.6 billion.”

“The internalization process initiated in 2012 was completed as planned in 2015. This internalization process means that, over some three years, assets of more than SEK 50 billion have reverted from external to internal management. The in-house management of this capital will mean a significant cost saving, while also enabling us to better utilize and develop the high levels of competence within the Fund.”

“In 2015, we advanced a step further in ESG field, by formalizing an overall strategy. Our vision is to make ESG an integral part of all analytical and investment processes. In implementing this strategy, based on a financial risk perspective, we will focus on four target areas – climate, diversity, reporting and governance.”

In the past five years, the Fund’s average annual real return has totalled 7.8 percent and, over the past ten years, 4.8 percent.

• AP2’s assets under management totalled SEK 300.6 (293.9.7) billion on December 31, 2015, against which net outflows to the national pension system were charged in an amount of SEK – 4.9 (–5.1) billion.
• The Fund posted a net result for the year of SEK 11.7 (34.3) billion.
• The Fund’s return on the total portfolio was 4.1 (13.3) percent, excluding commission fees and operating expenses. Including these costs, the portfolio generated a return of 4.0 (13.1) percent.
• The relative return on the total portfolio, excluding alternative investments and costs, amounted to 0.9 (0.5) percent.
• Operating expenses, expressed as a percentage of asset management costs, remained low and amounted to 0.07 (0.07) percent.
• During the year the First and Second Swedish National Pension Fund together with TIAA-CREF have combined forces in a new joint venture to create a leading, pan-European office investment platform, Cityhold Office Partnership.

* In the half-year report, the asset management cost ratio is shown on a full-year basis.
** In the half-year reports, annualised return is shown as 10.0 and 5.0 years respectively.

The English version of the AP2 Annual Report 2015 will be available at www.ap2.se from end of March.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, +46 31 704 29 00, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 29.

The Second AP Fund (AP2) is reducing its financial risk in power utilities, whose profits derive primarily from the carbon-based generation of electricity. Consequently, the Fund will not retain holdings in 28 power utilities. These combined holdings have a total market worth of some SEK 670 million.

The Second AP Fund’s climate-risk assessment of the power sector derives from its commitment to address ethical and environmental concerns without compromising the overall target of a high return on invested assets. This assessment is therefore based on a financial perspective, a consequence being that the Fund has decided it will not invest in 28 power utilities, whose profits derive primarily from the carbon-based generation of electricity.

This is the second climate-risk assessment conducted by the Fund. The first such assessment, concerning fossil-fuel companies, was conducted in 2014. This led the Fund to divest holdings in 12 coal producers as well as 8 oil and gas companies.

“The decision involves disinvestment from approximately a quarter of all electricity generating companies, reducing the Fund’s exposure to financial risk in the power sector. Our potential for generating value over the long term is greater if we invest in other companies instead,” states Eva Halvarsson, CEO of the Second AP Fund.

The power utilities identified derive a significant percentage of their profits from the carbon-based generation of electricity and lack a convincing strategy for diminishing their climate impact.

The Fund has holdings amounting to some SEK 670 million in the companies that have been identified.

The process of assessing the climate risks posed by the Fund’s holdings will continue over the coming years. In the next phase, the intention is to conduct an overall assessment of the portfolio, involving a number of different climate scenarios, to increase the understanding of how the Second AP Fund’s investments are affected.

For further details, please contact the Second AP Fund’s CEO, Eva Halvarsson or Ulrika Danielson, Head of Communications, at +46 (0) 31 704 29 00.

The Second AP Fund’s CEO Eva Halvarsson, will during World Climate Summit in Paris December 6th to take part in the panel Carbon Tracker Energy Plenary Session “A roadmap for the energy transition: challenges and solutions”.

Read more at: www.carbontracker.org/news/a-roadmap-for-the-energy-transition-challenges-solutions

This article was published in Dagens Nyheter 23 October.

“Ill-defined and bureaucratic. The proposal concerning new regulations for governing the activities of the Swedish National Pension (AP) Funds features several changes for the worse. It increases the risk of short-term politically-motivated micromanagement and puts an end to long-term investment in sectors such as real estate and infrastructure. In all probability, it will result in lower pensions,” write the chairs and CEOs of Sweden’s AP funds.

The four large funds of the Swedish state income pension system, the First, Second, Third and Fourth AP Funds, have been operating for 15 years now. In 2001, the funds were commissioned to manage capital of just over SEK 550 billion. This now amounts to around SEK 1,200 billion. And a total of over SEK 50 billion has been disbursed to the Swedish pension system during this period. These solid results have contributed to the AP Funds now accounting for 14 per cent of total pension assets, compared with 10 per cent when they were first established. That’s over SEK 350 billion more than expected when the system was set up 15 years ago. International comparisons also show that the AP Funds compare well with other pension funds, both in terms of returns and low costs, as the Swedish government’s own evaluation found.

The current legislation has worked well, both with regard to results and confidence in the AP Funds. The fundamental principles of the existing AP Funds Act are to promote high returns at low risk, to ensure the independence of the Funds and to provide the conditions for long-term investments that incorporate environmental and ethical considerations. This is achieved today through clear and simple governance which, without detailed regulation, aims to generate the greatest possible benefit for the pension system.
We are now raising major concerns about the future of the Swedish pension system because the proposed ‘New Rules for the AP Funds’ will make the system worse in a number of respects. We see significant risks in the proposal and it is our duty to highlight these for those who depend on the returns generated by the AP Funds – namely, current and future pensioners.

The proposal is a compromise based on a previous compromise and has weaknesses in numerous key areas.

• Neither the new National Pension Fund Board (that is proposed to oversee important issues) or the AP Funds are guaranteed sufficient independence from government.
• The AP Funds’ ability to invest will be restricted compared with the present as they would be governed by a reference portfolio and a cost cap determined by a National Pension Fund Board and the government, respectively.
• The AP Funds’ boards will not be granted sufficient authority to take operational decisions because, under the proposed legislation, the management of unlisted assets and large parts of their administration will be coordinated. This proposal neither promotes risk diversification or efficiency, nor does it provide any economies of scale.

Furthermore, the proposal is incomplete as it lacks two key elements – an impact analysis and a calculation of what these proposed extensive reforms will cost. We wish to highlight a number of consequences that are not mentioned in the proposal:
The proposal is highly likely to lead to lower pensions. If the proposal is implemented, the remaining AP Funds will have little opportunity to generate higher returns as the AP Funds have done until now by making long-term investments with sound risk diversification. There will be significantly less scope for conducting professional, strategic and proactive asset management and less opportunity to act as a responsible shareholder. The AP Funds will be completely disconnected from the overall goal of generating the greatest possible benefit for the pension system. The proposed reference portfolio will instead guide the AP Funds towards short-term low-yield index tracking and will lead to the selling-off of Swedish assets and the end of long-term investments in areas like property and infrastructure. Furthermore, there is a risk that greater bureaucracy and inefficient management will lead to less opportunity for the AP Funds to make profitable investments. In financial terms, this will involve significant losses for pensioners. The last eight years, the four AP funds jointly contributed to the pension system with SEK 20 billion in ‘active return’ only.

The proposal increases the risk of short-term political micromanagement. The AP Funds are currently only subject to Swedish parliamentary legislation to endeavour to achieve the highest possible return and to consider ethical and environmental issues without compromising returns. The proposed governance of the funds is unclear and bureaucratic. The proposals to establish a National Pension Fund Board and the ability for the government to have an influence will mean that power over the AP Funds will shift from parliament to the government and will present the prospect of short-term political micromanagement. The fact that the current government does not plan to make use of this ability has no bearing on what future governments may do. Pension capital should be managed on a long-term basis without political micromanagement.

The proposal will lead to high reorganisation costs. The proposal lacks a proper impact analysis, which makes it difficult to assess the implications of the reforms. The Funds have therefore asked an external party to calculate the risks and costs for the reorganisation involving the closure of certain AP Funds, the coordination of operations and the establishment of a new governance structure. During such a reorganisation, planned to start in 2016 and continue for almost two years, there is a risk that the AP Funds will lose their focus on long-term asset management which will have a negative effect on results. If this were to lead to even a 0.1 per cent decrease in returns this would still amount to some SEK 1,200 million. Other costs are also significant. Over the two years the reorganisation is estimated to cost several billion kronor. This contrasts with the only expected saving stated in the proposal of around SEK 50 million annually. It will be several generations before these costs are recouped.

Those of us who have been tasked with managing the AP Funds’ capital responsibly for the benefit of current and future pensioners, with the pension system facing significant challenges over the next 15 to 20 years, believe the proposed New Rules for the AP Funds will not lead to better pensions, quite the contrary. This proposal therefore cannot form the basis for a reform of the AP Funds.

Urban Karlström, Chairman of the First Swedish National Pension Fund (AP1)
Marie S. Arwidson, Chairman of the Second Swedish National Pension Fund (AP2)
Pär Nuder, Chairman of the Third Swedish National Pension Fund (AP3)
Monica Caneman, Chairman of the Fourth Swedish National Pension Fund (AP4)
Johan Magnusson, CEO of AP1
Eva Halvarsson, CEO of AP2
Kerstin Hessius, CEO of AP3
Mats Andersson, CEO of AP4

Integrating sustainability into asset management is about factoring sustainability issues into analytical and decision processes. This also enables the Fund to reduce risk and increase its potential for increased return. The Fund believes that companies focused on long-term sustainability will also generate a solid return in the long term.

Today, the Second AP Fund publishes its Sustainability & Corporate Governance Report for the period 2014/2015. Features include the Fund’s report on the implementation of the PRI, a report on the Farmland Principles, a selection of the Fund’s sustainability goals and a description of the Fund’s progress in implementing sustainability into the investment process.

“The Funds broad focus is on making sustainability integral to the asset management process. Our vision is that sustainability shall become integral to all of the Fund’s analytical and decision processes. Areas we shall especially focus on are: climate, corporate governance, diversity and transparency/reporting. The Fund possesses extensive expertise and experience in these, having been engaged in these issues for a considerable period of time,” states Eva Halvarsson, CEO of the Second AP Fund.

The Second AP Fund invests about SEK 11 billion in assets/funds that pursue a business strategy based mainly on sustainability.

Climate issues – and climate change in particular – present enormous risks, as well as opportunities, for long-term investors like the Second AP Fund. Climate change is expected to have a major impact on long-term investment. The Second AP Fund is engaged in an ongoing project of fossil energy and financially-related climate risks and, during the year, among other things, this has resulted in a decision to no longer invest in 20 energy companies. During spring, the Fund was ranked eleventh in the world among investors according how well they manage climate risk in the portfolio.

“In-house efforts continue concerning the analysis, from a financial perspective, of the carbon-emission risks associated with our portfolio. This year’s agenda features an analysis of power-generating companies. During 2015, the Fund has actively lobbied investors to standardize the way the carbon footprint is measured,” says Eva Halvarsson.

See the Second AP Fund Sustainability & Corporate Governance Report, www.ap2.se.

For further details, please contact Eva Halvarsson, CEO of the Second Swedish National Pension Fund, on +46 31-704 29 00, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 29.

The Second AP Fund (AP2) posted a total return of 5.2 percent, excluding costs, for the first half of 2015. Relative to benchmark index, return was 0.2 percent, excluding alternative investments and costs. Fund capital increased by SEK 12.6 billion to SEK 306.5 billion by June 30 2015.

• The Second AP Fund’s assets under management totalled SEK 306.5 (280.3) billion on June 30 2015, against which net outflows to the national pension system were charged in an amount of SEK -2.4 (-2.5) billion.
• The Fund posted a first-half net result of SEK 15.0 (18.1) billion.
• The Fund’s return on the total portfolio was 5.2 (7.0) percent, excluding commission costs and operating expenses. Including these costs, the portfolio generated a return of 5.1 (6.9) percent.
• The relative return on the portfolio of quoted assets, excluding alternative investments and costs, amounted to 0.2 (0.1) percent, corresponding to a net contribution of SEK 0.5 billion.
• Operating expenses in terms of asset management costs continued to be low, remaining unchanged at 0.07 (0.07) percent for the period.
• Over the past ten years, the Fund has generated a return on invested assets of 96.6 percent (excluding costs), corresponding to an average annual return of 7.0 percent. Less inflation, this is equivalent to an annual real return of 5.8 percent.
• Since its inception in 2001, the Fund has generated an overall return of SEK 178.7 billion, corresponding to an average annual return of 5.7 percent, including costs.
• The Fund’s level of currency exposure was 30 (25) percent.

“In the past ten years, the Fund has generated a total return of SEK 155 billion on investment. This is equivalent to an average annual return of 7.0 percent. Less inflation, this corresponds to an annual real return of 5.8 percent, exceeding our targeted long-term return by a considerable margin. Our fund capital totalled SEK 306.5 billion, a new record” states Eva Halvarsson, CEO of the Second Swedish National Pension Fund.

“During the first half of the year, we have maintained our strategy of managing an ever greater share of Fund capital in-house, by taking responsibility for the management of global credits. Increasing the percentage of assets managed in-house is cost efficient, while also enabling more effective operational control. This in turn contributes to developing the operation, as well as the net result,” states Eva Halvarsson.

Events after close of report period
• Following the close of the report period, the financial markets have experienced some turbulence. This derives mainly from anxiety over prospects for growth especially in China and the potential impact on the global economy. So far, these factors have occasioned no changes in the Fund’s portfolios. The Fund’s long-term strategy, based on a well-diversified portfolio, remains unchanged.
• AP2 has together with American pension fund TIAA-CREF and AP1 reached an agreement concerning the formation of a new joint company. The company will act as a platform for investment in European office properties. The properties owned by Cityhold Property AB – a real-estate company which we formed with AP1 in 2011 – and TIAA-CREF’s European portfolio of commercial real estate in THRE will be combined to form the joint company, Cityhold Office Partnership. The joint market value of these two real-estate portfolios currently totals more than EUR 2 billion.

The complete half-year report (pdf)

A Sustainability Report will be published separately in October.

For further details, please contact CEO Eva Halvarsson, Second Swedish National Pension Fund, or Ulrika Danielson, Head of Corporate Communications, on +46 31 704 29 00.